ECON 20A Study Guide - Comprehensive Midterm Guide: Invisible Hand, Market Power, Lifesaving
Document Summary
Lecture 2- chapter 1 (con"t) : ten principles of economics. Principle #5: trade can make everyone better off. Rather than being self-sufficient , people can specialize in producing one good or service and exchange it for other goods. Countries also benefit from trade & specialization: Get a better price abroad for goods they produce. Buy other goods more cheaply from abroad han could be produced at home. Principle #6: markets are usually a good way to organize economic activity. Market: a group of buyer and sellers( need to be in a single location) ; decentralized. A market economy allocates resources through the decentralized decisions of. Famous insight by adam smith in the wealth of nations (1776): many households and firms as they interact in markets. Each of these households and firms acts as if led by an invisible hand to promote general economic well-being. The invisible hand works through the price system: The interaction of buyers and sellers determines prices.
